Boo.com
A European start-up that tried to sell branded sports and fashion clothing online with a 3D experience
- Founded
- 1998
- Closed
- 2000
- Lifespan
- 2 years
- Total funding
- $135 million
- Country
- United Kingdom
- City
- London
- Sector
- E-commerce
- Founders
- Ernst Malmsten, Kajsa Leander, Patrik Hedelin
- Investors
- Omnia
- At its peak
- 8 offices and 400 employees in October 1999
- Cause of closure
- Ran out of cash
What did it do?
Boo.com was a London-based online fashion retailer that aimed to sell branded sportswear and fashion to stylish, well-off 18 to 24-year-olds. The site stood out for letting shoppers inspect products on three-dimensional models and for a virtual shopping assistant called Miss Boo. After a launch that was postponed several times, it went live in autumn 1999.
Why did it shut down?
The company spent USD 135 million in 18 months; USD 25 million went on advertising and PR before a single sale was made. Pages weighing hundreds of kilobytes and an unusual navigation structure frustrated users at a time when broadband was not widespread. A free returns service produced a higher return rate and higher logistics costs than expected, and headcount was expanded before needs were clear. The business plan assumed that fresh capital would be found until sales caught up with costs, and that door closed with the Nasdaq slide in the second quarter of 2000. The company was placed in receivership on 18 May 2000 and liquidated.
The story
The Boo.com domain had been bought from a broker for USD 2,500; everything else about the company would cost far more. In 1998 three Swedish entrepreneurs, Ernst Malmsten, Kajsa Leander and Patrik Hedelin, set up a company on London's Carnaby Street to sell branded sportswear and fashion online. The trio had previously founded an online bookshop in Sweden called Bokus.com, and investors regarded them as among Europe's most experienced internet entrepreneurs.
The target audience was stylish, well-off 18 to 24-year-olds. The site let shoppers inspect clothes on three-dimensional models and offered a virtual shopping assistant called Miss Boo. Developing the 3D technology alone cost more than USD 6 million, and maintaining it cost USD 500,000 a month. The launch was postponed several times; when the site finally opened in autumn 1999, the company had offices in Amsterdam, Munich, New York, Paris and Stockholm and 400 employees. USD 25 million had been spent on advertising and PR before a single sale.
The first impression was poor. The home page weighed hundreds of kilobytes and, at a time when broadband was not widespread, could take minutes to load; a fixed-size window and navigation logic that changed from page to page wore users out. These problems were largely fixed over time and sales rose quickly; in the two weeks before the collapse, sales reached around USD 500,000. But the free returns service brought a higher return rate than expected, and headcount ballooned before needs were clear.
The real problem was the plan itself: it assumed that new venture capital would always be available until sales caught up with costs. That door closed with the sharp Nasdaq slide in the second quarter of 2000. Having spent USD 135 million in 18 months, the company was placed in receivership on 18 May 2000. The biggest loser was the Omnia fund, backed by members of Lebanon's Hariri family, which had invested around GBP 20 million. The technology was sold to Bright Station for USD 250,000; the brand passed to Fashionmall.com and relaunched in autumn 2000 on a far smaller budget.
The lesson of Boo.com is clear: a growth plan built on the assumption that capital will always flow cannot save a company when the market turns, even if the product has improved.
Lessons for founders
- Base your financing plan not on the assumption that the next round will come whatever happens, but on how close you can get to profitability with the cash you have.
- Test technical showmanship against your target audience's real connection speeds and devices; a shop window that loads slowly loses sales.
- Price in the logistics cost of promises such as free returns from the start, together with an estimate of the return rate.
Sources
- Boo.com (Wikipedia)
- INTERNATIONAL BUSINESS; Fashionmall.com Swoops in for the Boo.com Fire Sale (The New York Times, 2000-06-02)
- Boo back in business, this time on a budget (The Telegraph, 2000-10-30)
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